Doubts persist over Holzmann aid deal

Date: 21/09/00

By Peter Chapman

EUROPEAN Commission anti-trust watchdogs still have serious doubts about the need for a 125-million euro bailout package for troubled German construction giant Philipp Holzmann.

But officials say it is too early to judge whether an additional 62.5-million euro loan to the company by the Kreditanstalt für Wiederaufbau (KfW) state development agency falls foul of Union state aid rules.

Holzmann has now responded to the Commission's request for more information about the payment, claiming it was offered at market rates and therefore did not require EU clearance. "We received some information from the company at the beginning of last week, but it is too early to say whether the loan complies with EU rules," said an aide to Competition Commissioner Mario Monti.

The official added that the main focus of the Commission's painstaking inquiry remained Germany's initial promise of a 125-million euro loan to underpin a multi-billion-euro private sector restructuring plan for the company.

"We are making slow progress. We are still not convinced that this restructuring plan is viable and will turn the company around for good. Where we seem to have the most difficulty is in assessing the actual necessity of aid," said the official. "The problem is why did it suddenly make the difference and why did banks say yes when they before had said no?"

Despite the complexity of the case, Monti's officials say the Commissioner hopes to complete the investigation well ahead of the 18-month time limit for a state aid probe.

The stopwatch started ticking in January when the Commission began its initial investigation into Holzmann, amid doubts that the package would be adequate to return the firm to profitability. The company has blamed its losses on 'breaches of duty' by former executives, who have been accused of knowingly concluding bad real-estate deals in Germany in the early 1990s.

Market analysts predict that the Commission will eventually decide not to take any action against Berlin over the rescue package, on the grounds that the amount of money coming out of state coffers is largely symbolic and makes up a relatively small part of the overall bailout.

Holzmann is renowned globally for key projects such as the enlargement of the Roosevelt dam in the US. But like its competitors Hochtief and Bilfinger und Berger, the firm has been trying to dig itself out of a hole since the German construction industry began to slump in early 1995. In 1998 alone, the number of new homes built in Germany fell by 14% compared with the previous year.

Holzmann is one of a spate of cases likely to affect the Germany's ranking on a new state aid 'scoreboard', now expected early in 2001. These also include a high-profile investigation into the recent flurry of acquisitions made by postal operator Deutsche Post.

European Commission anti-trust watchdogs still have serious doubts about the need for a €125 million bailout for the troubled German construction giant Philipp Holzmann.